Daily Report 140416 2016-04-14
Macro Economy
US stock market rose for the second consecutive days, and reached the highest point of 4 months. China trade data rally and JP Morgan profit exceeding expectation boost the market. S&P 500 index increased 20.7 point or 1% to 2082.42 point. Data released yesterday indicated that US March retail sales dropped 0.3% month-on-month, but the expectation was increase by 0.1%, and weaken motor vehicle consumer data was the main encumbrance. Atlanta Fed expected that US first-quarter GDP increase range to be risen from 0.1% to 0.3%. The Fed beige book indicated that US economy continued expansion from the end of February to the beginning of April; employment was promoted and brought long-awaited driving force to salary and price; most districts presented economy growth was between moderate to wild, and the respondents predicted that this range will continue; most local Fed consider economy increased moderately from the end of February to March. We consider, even this term retail sales is not good, but the direction of US economy recovery continues; moderate growth still can be expected; the tighten policy direction won’t change. From a report released yesterday, Fed president Yellen considered under a circumstance full of uncertainty, the Fed was justified to be cautious. Yellen emphasized the economy risk again in the conversation, and she indicated there should be a kind of risk management method to ensure and avoid big risks, which means overseas economy risk, especially from China, and inflation rise should continue being focused on.
From European side, Euro Zone February industrial production decreased by 0.8% month-on-month, which was the largest decline in 18 months and lower than market expectation; economy still doesn’t have significant recovery expectation. ECB vice president Constancio indicates that ECB will take all the necessary measures to control euro zone inflation rate back to normal. Although ECB negative interest rate policy shows positive effect, but as a policy instrument, it has significant limitation. ECB will continue implementing necessary measure; monetary policy need government take fully use of fiscal space. This is identical with Draghi’s statement of no need to reduce interest rate again.
Stock Index
Yesterday stock index rose, and Shenwan first class sectors all line increased. The state council reduced enterprise social security payment rate, and this will save 100 billion for enterprises. From data side, March import and export both have significant improve on year-on-year and month-on-month statistics. Export increase rate rallied sharply, and import increase rate narrowed; trade gap continues narrow to $29.86 billion. Under the environment of fiscal support and easing credit policy, the other data that is released today tends to stabilize in the future. The macroeconomic data gradually seems unlikely to further weakening since the last stabilization of fixed assets investment data, which is uncommon over the past year. From reform side, firstly, during Business Tax to Value-Added Tax improvement, government transfers 500 billion profits to enterprise, which is real reform; secondly, debt-to-equity swap is favorable in the short term, but continuous arguing exists about its long term effect; thirdly, current default news shows up constantly, and risks accumulated from prior period expose now; market convey worry by diving. But debt problems have occurred since 2012, and systematic default and credit shrink have not formed yet, and seems under control in the short term, which means bad debt problem is not that bad.
Overall, stable data benefits from steady increase; easing continues, and from reform side: Business Tax to Value-Added Tax, debt-to-equity swap and state-owned enterprise reform continue to process; In terms of fund side, there still exists the assets allocation shortage and an excess of money flows into all sorts of fields like tide. We expect the market to see an uptrend with volatility.
Wednesday LME copper price continued slightly increasing, domestic copper price as well fluctuate at high point. Wednesday LME spots premium decreased $3.5 to $18.5, inventory edged up 25 tons. Domestic copper spots were leveled off to premium RMB 50; import copper supply was sufficient but, buying momentum was limited. From supply side, Zambia suggested to reduce mining royalty to 4-6% based on the copper price, which showed each area mainly reduce the costs to deal with the weakened copper price. Zambia output of 2016 will increase from 710,000 tons from last year to 800,000 tons. Technically, we tend to the copper price only rallies within the downward trend, recommend paying attention on the effect of copper price resistance. LME is $4900 and, domestic is RMB 37000/8000.
Steel Rebar
Steel rebar futures dominant contract price slightly volatile in the night session; rb1610 contract trading volume decreased and, market closed at 2366 with holdings increased. From macro side, Ministry of Land and Resource: suspends the grant land use right on new projects of the steel and mine industry nationwide; aims at maintaining liquidity in the banking system at a "reasonably abundant" level, central bank injects 285.5 billion yuan into seventeen financial institution via MLF; among the new funds, 127 billion yuan is for 3 months, and 158.5 billion yuan is for 6 months; at interest rates of 2.75 percent and 2.85 percent which levels off last period and, guides financial institutions to boost support for key areas and vulnerable links of the national economy. From industry side, World Steel Association: global steel demand decreases 0.8% in 2016; coal industry gets real about de-capacity and, eight supportive documents from NDRC are gradually issuing now.
From spots side, domestic dominates construction material market price continues increasing. Beijing standard steel mainstream quotation is RMB 2840-2860/ton; Tangshan third stage anti seismic mainstream quotation RMB 2900/ton; Shanghai construction material mainstream quotation at RMB 2510-2540/ton. From hot rolled coil side, Shanghai 5.5-11.75*1500*C standard hot rolled coil mainstream quotation is RMB 2820-2840/ton; Tianjin 5.5-11.75*1500*C standard hot rolled coil mainstream price is RMB 2820/ton. From billet side, Tangshan billet price is stabilized at RMB 2280/ton. Current spots supply is tight under the bolster from downstream demand and, price continues firming. As for operation, we recommend continuing strong out of fluctuation mindset.
Iron Ore
Iron Ore dominate contract price fluctuated at high in the night session; i1609 trading volume was thick, market closed at 424.5 with holdings decreased. From spots side, domestic ore market price at major production area is stabilized. Current Qian’an 66% dry basis tax included cash producer price is RMB 520-530/ton; Zaozhuang 65% wet basis tax excluded cash producer price is RMB 475/ton; Laiwu 64% dry basis tax included acceptance producer price is RMB 525/ton; Beipiao 66% wet basis pre-tax cash producer price is RMB 350-360/ton. From imported ore side, price at the port has increased. Main quoted prices for 61.5% pb fine of Qingdao port and Caofeidian port is RMB 450/ton and, RMB 450/ton, respectively. As for operation, futures price is likely to continue strong pattern under the bolster from spots, dominate contract focuses on range at 420-440.
DCE soybean rallied following overseas market; oil against meal ratio dropped back to 2.51:1. Soybean price at northern is mainly in stabilization and, according to agencies from production area, recent buying momentum from southern enterprises and grain merchants are thick, market buying and selling momentum has revived. Raised market buying trend has enhanced the mindset over soya farmers are reluctant to sell out, hence, price is stabilizing under the bolster.
From soybean meal side, oil plants quotation continues rallying by RMB 20-50/ton with variation under the boost from overseas market, quotation at RMB 2440-2480/ton. Domestic oil plants operation ratio soars and, spots increases but, market trading is still thin; along with the port arrival amount increasing from South America soybean, hammer on domestic spots still exists and, shows risk on dropping in the future. As for operation: fundamental on Soybean No.1 contract is weak and, we recommend staying in observing temporally; holding soybean meal long positions in the low point and, short the arbitrate between oil and meal at 2.62:1.
Natural Rubber
Yesterday Shanghai rubber dropped after soaring, long positions decreased holdings after hitting the highest point 12950; market closed at 12545 point in the night session. US spots trading period: domestic spots price is 1480-1490 (0); domestic cargo price 1480-1500 (0); US dollar RSS spots price 1660-1670 (+20); US dollar RSS cargo price 1670-1690 (+20); Singapore cargo price 1540-1560 (+10); Thailand is in the Songkran Festival Day and no quotation; RMB mixed rubber price 11600-11700 (+200). From news side: yesterday released data continued booming, Chinese March export soared over 10% and, import sharply dropped, including imported nature rubber and synthetic rubber at 540,000 tons, soared 50% compare to the 360,000 tons at the same period of last year and, was as well higher than the import volume 310,000 tons in February. Accumulative import rubber at the first quarter of 2016 is 1.3 million tons, increases 32.6% year-on-year. In addition, PBOC pumped RMB 285.5 billion via MLF to stabilize the asset yesterday. Overall: the economy data has boosted the commodity market but, short term hot money takes profit, tendency expects to volatile at high.
Yesterday PP futures opened high and went low in fluctuation; opened at 6945 and ended at 6803; trading volume increased 856,000 lots to 2.966 million lots; holdings decreased 28516 lots to 571,000 lots. From spots side, yesterday domestic PP market price shows narrowly sideways. Producer price from petrochemical regions was mainly in stabilizing which bolstered the marker on a certain extent. PP futures were at high point which boosted the market sentiment. Merchants shipped following market price and staying in observing; downstream receive price was at RMB 7450/ton. Wires mainstream quotation for south china is at RMB 7500-7600/ton.
As for operation, current moving average system twisted; MACD exposure downward extended as weak pattern. But a great clamor has arisen around recently over crude oil production freeze agreement; PP is expects to continue volatile before Sunday and, we recommend staying in observing.  
                                                Dong LV (Investment Certificate NO. TZ008452)